A person invests $8000 at 2% interest compounded annually for 5 years

Question

A person invests $8000 at 2% interest compounded annually for 5 years and then invests the balance (the $8000 plus the interest earned) in an account at 6% interest for 10 years. Find the final value of the investment.

Answer 1

You will want to use the formula A=P(1+r/n)^nt where A equals your total (principle + interest accrued) P equals your principle (initial amount invested) r equals your interest rate (1=100% in this case, so 2% would be .02) n equals the amount of times the interest is compounded in terms of t (if it compounds once every year and you use single years, such as 5 years, the n value will be 1) and t equals your time, in this case years. For the first part your equation should look like A=8000(1+.02/1)^5*1 which would give 8832.65$. For the second part of the equation you would use the 8832.65 as the P value, change your r value to .06 (6% interest) and your t value to 10 (10 years).